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Democrats harden opposition against Summers for U.S. Fed

U.S. economist and Harvard University professor Lawrence Summers speaks during a luncheon at the Asian Financial Forum in Hong Kong January
U.S. economist and Harvard University professor Lawrence Summers speaks during a luncheon at the Asian Financial Forum in Hong Kong January

By Alister Bull and Rachelle Younglai

WASHINGTON (Reuters) - Four Democrats on the Senate Banking Committee are now expected to vote "no" if President Barack Obama nominates former economics adviser Lawrence Summers to be the next chair of the Federal Reserve, complicating one of the most vital decisions of his second term.

Jon Tester on Friday became the latest member to publicly announce his opposition, taking to three the number of senators on the committee who are known to be against Summers, while a fourth, Elizabeth Warren, is also expected to be a "no" vote.

"Senator Tester believes we need a consensus builder to lead the Federal Reserve. He's concerned about Mr. Summers' history of helping to deregulate financial markets," said Andrea Helling, spokeswoman for the Montana Democrat.

Summers is widely thought to be Obama's preferred choice to replace Fed Chairman Ben Bernanke when his term ends in January. The White House said on Friday that the president had not yet made a decision.

Obama's impending decision on who should lead the U.S. central bank has sparked a highly unusual and vitriolic public debate over a position that in the past generated little interest beyond Wall Street and academia.

Fed Vice Chair Janet Yellen is also a candidate for the job.

Twenty Senate Democrats had already signed a letter urging Obama to nominate Yellen, although Tester was not among them. Yellen would be the first-ever woman to lead the U.S. central bank, if nominated and confirmed.

Other Democrats are unhappy with Summers, who served as Treasury secretary under President Bill Clinton, because of his backing for banking deregulation in the 1990s, which they blame for sowing the seeds of the 2007-2009 financial crisis.

The financial crisis led to a massive taxpayer bailout of Wall Street that continues to anger many ordinary Americans and could be another issue for Summers. He has close ties to the financial industry, where he is a highly paid consultant.

Tester implicitly nodded to Summers' closeness to Wall Street, rather than Main Street, as another reason for not wanting him to lead the Fed.

"The senator thinks it is vital to have a chair who appreciates the important role small community lending institutions play in financial markets," his office said.

VOTE COUNTING

Liberal opposition may make it harder for Obama to conclude that he can nominate his former adviser at a time when he needs their support on other difficult issues, including a deal to raise the U.S. debt ceiling and to keep funding the government.

A vote on military action against Syria would also have spread his political capital thinly with progressives in Congress, but this was delayed earlier in the week.

Democratic defections on the Senate Banking Committee would mean that if Obama does choose Summers for the top Fed job, he would need support from Republican members to advance the nomination for consideration by the full Senate.

Democrats have 12 seats on the banking panel. Republicans have 10 seats.

Committee Democrat Sherrod Brown of Ohio has told Reuters he would vote against Summers, and congressional aides have said Oregon's Jeff Merkley would also oppose him.

Colleagues of Warren, a Democrat of Massachusetts, expect her to vote against Summers if he is nominated, sources familiar with the matter said. The sources said she has expressed concerns about Summers to her colleagues and had raised them with people in the White House. She has stayed silent out of respect for Obama.

It is highly unusual for senators to announce which way they are leaning before the president has formally announced his pick. Normally, they wait until the vetting committee has a chance to examine the candidate and then weigh in afterward.

Republicans have not said much publicly about Summers, although the party's second-ranking member in the Senate, John Cornyn, has announced he would not back him for the position, and a few other Republicans have also expressed opposition.

(Reporting by Alister Bull and Rachelle Younglai; Editing by Eric Beech, Krista Hughes and Leslie Adler)

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